The main legal point established in the judgment is the importance of providing the defaulter with an opportunity to be heard regarding the computation of interest and the necessity of following the principles of natural justice in revenue recovery proceedings.

M. FATHIMA BEEVI, J.

Petitioner challenged exhibit P6 demand notice issued for payment of an amount of Rs. 29,223.22 as arrears for the period from 1971-72 to 1975-76. The petitioner had been assessed to sales tax for these years. The arrears certified for recovery under the Revenue Recovery Act was an amount of Rs. 58,205.96, which included sales tax for the aforesaid period and penal interest thereon. On 9th January, 1986 Tahsildar certified in exhibit P1 that the petitioner has already remitted Rs. 34,205.96. The balance of Rs. 24,000 had been remitted by the petitioner as per exhibits P2 to P5, the last payment being on 31st March, 1987. According to the petitioner exhibit P6 notice issued, after such payment, is illegal and the proposed action under the Revenue Recovery Act is unwarranted.

2. In the counter-affidavit filed on behalf of the second respondent it is stated that District Collector has advised for recovery by letter No. B4-52655/82 dated 23rd November, 1982 of a sum of Rs. 58,205.96 inclusive of penal interest of Rs. 10,101.73. The defaulter has remitted a sum of Rs. 34,205.96 till 9th January, 1986. The petitioner had also remitted Rs. 24,028.00 from 20th March, 1986 to 31st March, 1987. Thus a total amount of Rs. 58,233.96 has been realised from him. It is further stated that the penal interest towards the tax was worked out only up to the date of issuance of the revenue recovery certificate, i.e., 24th September, 1982 by the assessing authority. Penal interest accrued on the tax from 24th September, 1982 till the clearance of tax arrears has also to be collected. Accordingly exhibit P6 notice was issued to the petitioner. The amount of Rs. 29,223.22 is made up of tax Rs. 8,195.22 plus penal interest of Rs. 21,028. Exhibit P6 notice is issued by the second respondent as the amount recoverable being balance tax and penal interest.

3. The admitted facts thus revealed that as against the demand for payment of tax and penal interest up to 24th September, 1982 the petitioner had remitted the full amount of Rs. 58,233.96. This amount was liable to be adjusted towards the tax as well as the penal interest that accrued due up to 24th September, 1982. When steps are taken under the Revenue Recovery Act and demand notice is issued under section 7, the defaulter is liable to pay the amount in arrears together with the interest thereon and the cost of process. If the interest accrued subsequent to the date of demand is not worked out and paid, the recovery officer is entitled to proceed for recovery of the same in the course of the proceedings. However, when payments are made by the defaulter and such payments could be appropriated either towards the tax or the interest that accrued due, and the interest for the subsequent period is computed it is only fair and proper that the defaulter is given an opportunity to be heard regarding the quantum.

4. Penal interest is levied under section 23(3) of the Kerala General Sales Tax Act which provides that if the tax assessed or any other amount due under the Act is not paid by any dealer within the time specified therefor in the notice of demand the dealer shall pay by way of penal interest in the manner prescribed, in addition to the amount due, interest at the specified rate. Rule 31 of the Kerala General Sales Tax Rules prescribes the mode of payment of penalty. The penal interest can be paid either separately or along with the tax. Sub-rule (2) provides that :

"The assessing authority concerned may calculate the penal interest payable under sub-section (3) of section 23 from time to time and may issue a notice in form 24. On receipt of the notice the dealer shall pay the penal interest due in the manner specified in sub-rule (1)."

The explanation further states that :

"The dealer or other person concerned shall however be liable to pay the penal interest under sub-section (3) of section 23 whether he receives a notice under this sub-rule or not."

This rule postulat